The Threat to the Net from Net Neutering

I’m still catching up a bit on some reading missed during the holiday period, and this piece, “Technology in 2008,” from the Economist.com caught my eye. The subtitle is “Three Fearless Predictions.”

The first fearless prediction --that surfing the net will slow-- makes me fearful. Read the whole piece, but the first paragraph gives you the gist: “Peering into Tech.view’s crystal ball, the one thing we can predict with at least some certainty is that 2008 will be the year we stop taking access to the internet for granted. The internet is not about to grind to a halt, but as more and more users clamber aboard to download music, video clips and games while communicating incessantly by e-mail, chat and instant messaging, the information superhighway sometimes crawls with bumper-to-bumper traffic.”

Stop taking access to the Internet for granted. The information superhighway sometimes crawls with bumper-to-bumper traffic.

To some extent this prediction about a slowing Internet rests on the projected exponential increase in user-generated content, one that is already occurring in what the article calls “tsunami” proportions. According to the Economist, “everyone, it seems, is suddenly a budding Martin Scorsese, bent on sharing his or her home-made videos with fellow You-tubers.” The increase in simultaneous uploading and downloading, coupled with the explosive growth in wireless Internet traffic, Internet television and the like, will have “users screaming for yet more capacity.”

It may be that in the near-term (2008?) the Economist prediction is only half-right. Or maybe only a third or fourth-right. No matter. There is no doubt, is there, that our nation’s various Internet service providers – cable, telephone, wireless, satellite -- will need to continually upgrade and expand their networks to provide more capacity, including capacity to end users?

Unfortunately, as we begin 2008, there are still many, including many policymakers who should know better, who are screaming, not for more capacity, but just for “net neutrality” regulation. There is no surer way to ensure that we will face a capacity crunch than to impose net neutrality regulation on Internet service providers. As I have explained many, many times in this space, regardless of the language used to describe it, net neutrality regulation is no less traditional public utility regulation than the common carrier regime which characterized regulation of AT&T back in the last century at a time when the carrier exercised dominant market power.

It is impossible to prohibit and enforce the non-discrimination mandates that are at the very core of all net neutrality regulation without also ultimately regulating prices. Put another way, net neutrality regulation prevents Internet service providers from finding, or even experimenting with, innovative ways to respond to consumer demand for new services by using price differentiation methods that characterize most markets.

Imposing net neutrality regulation in today’s competitive, dynamic environment will stifle investment in new network facilities by Internet service providers, both existing ones and others who might consider entering the market with an investment in new facilities. This is the inevitable effect of public utility-type regulation that puts in place regulatory straight-jackets and price controls that cap the providers' ability to earn a market-based return on invested capital. It is why I have called net neutrality regulation "net neutering".

So, net neutrality regulation hardly seems to be the right prescription for dealing in a rational way with potentially severe looming Internet bandwidth constraints. Indeed, it would be just the wrong medicine at the wrong time.